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4 Reasons Manufacturing Jobs Are Returning to the USA

Manufacturing jobs are being reshored to the US. Here are the main drivers behind this trend.

American companies outsourcing jobs to other countries has become a major topic in US elections, media debates, and everyday conversations. Lower costs, more flexibility and more favorable regulatory environments are a few of the many reasons American businesses have been sending their manufacturing jobs to workers in other nations.

Recently, though, companies have been bringing their jobs back to the US, a trend known as reshoring. Just like there are a lot of reasons for outsourcing, there are plenty of motives for reshoring.

On the following pages, we explore some of the most common reasons manufacturing jobs are coming back to the United States.

1. Automotive and Electronics Industry Growth

The two industries that have relocated the most jobs back to the US are the automotive and electronics industries. This is partially because the size of these products makes it more difficult and expensive to transport them.

Groups such as the United Auto Workers have had some influence in bringing jobs back to the US, but auto companies have also exceeded their promises to the organization and started producing advanced technologies, such as lithium-ion batteries, in the US.

In some cases, unions have even considered allowing lower wages for US workers to make onshore production more cost-effective compared to outsourcing. If car part manufacturers reduce their U.S. wages by 40 to 50 percent, bringing operations back to America would make economic sense once shipping costs are factored in. After the reductions, the wages for US workers would still be higher than for those in Mexico.

Advanced technologies are the most likely to be reshored, because they’re the most difficult to produce and often require highly skilled workers to make them. In the US, these workers are often easier to find, and companies can watch manufacturing processes more closely.

2. Increased Labor Cost

One of the most common reasons for moving manufacturing jobs overseas is the cheap production and labor costs available there. Wages in other countries, however, have been rising, making outsourcing less lucrative. Wages in China, for example, more than doubled between 2005 and 2016, making production in China more expensive than in other middle-income countries and closer to the cost of production in high-income countries like the United States.

Around the world, wages adjusted for inflation are predicted to increase by 2.3 percent. Asia is expected to see the biggest increases, with Vietnam, Thailand, Indonesia, India, and China all near the top of the list. Vietnam is projected to have the highest real wage growth in 2017, at 7.2 percent.

North America, meanwhile, is expected to have smaller increases in salary. In the U.S., the number is just 1.9 percent. This means the gap between wages in Asia and the United States is closing.

When taking into account other cost factors, the cost of having plants in the US versus other parts of the world becomes closer to equal. Automation — though it has a reputation for destroying jobs — has made labor costs cheaper in the US, encouraging more companies to bring production back to American soil.

3. Logistical Challenges

Logistical issues are another factor making America more desirable for manufacturing companies. Moving production overseas can complicate the supply chain, and shipping products and materials from overseas to the US can get expensive.

Moving operations offshore requires new facilities to be built and parts to be shipped to the new location, which necessitates significant fuel and transportation costs. The finished products then need to be shipped back to US markets, tacking on additional shipping costs. In a world where companies like Amazon ship almost anything overnight, manufacturing companies that make their products offshore are struggling to keep up.

Dealing with foreign governments and regulatory environments, hiring foreign employees, and finding a location for facilities can also sometimes be a difficult challenge. Although manufacturers could purchase equipment that takes up 30 percent less floor space, for instance, they may be able to obtain more space for their plants in the US, which provides them with more flexibility.

4. Lack of Skilled Workers

As manufacturing equipment becomes more advanced, companies need more technically skilled workers to operate and service it. Finding these kinds of employees can be difficult in some locations. For this reason, a number of manufacturers have decided to move their production back to America, where it is easier to find more highly educated workers.

This rising demand for more skilled workers has also caused wages to rise, especially in areas where finding these workers is more difficult. Some of the demand for skills has shifted to those who know how to work with advanced technologies that use automation or smart technologies.

These workers may get paid more, but because of the technology they’re using, they can get more done than an average worker. This enables manufacturers to hire fewer workers, which keeps costs lower and increases the appeal of bringing operations back to the US, where a larger share of their workforce can be highly skilled.

The jobs that came back aren’t quite the same as ones that left, either. They deal with more advanced technology and are being redistributed differently. These changes and all the many others may, however, be the beginning of a resurgence of American manufacturing. While the outlook has certainly been improving, we will have to wait and see — and continue working on it — before we determine what will ultimately happen.

Megan Ray Nichols is a freelance technical writer and the editor of Schooled By Science. When she isn't writing Megan enjoys going on hikes, stargazing or finding a new book to read. You can follow Megan on Twitter, @ nicholsrmegan, or subscribe to her blog for the latest updates.

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